Airline industry needs tax relief, panel reports Regulatory changes also suggested

August 20, 1993|By Suzanne Wooton | Suzanne Wooton,Staff Writer

WASHINGTON -- Significant tax relief and regulatory reform must occur to help pull the nation's beleaguered airlines out of their financial hole, a federal commission created to study the industry reported yesterday.

The 15-member commission, created by President Clinton and Congress to study the plight of the airline and aerospace industries, formally proposed a two-year exemption from the new, 4.3 cent-per-gallon federal fuel tax, along with cuts in other taxes, such as those imposed on passengers and cargo.

"This is an industry in deep trouble that has lost $10 billion since the Gulf War began three years ago," said former Virginia Gov. Gerald L. Baliles, who headed the National Commission to Ensure a Strong Competitive Airline Industry. Airlines, he said, JTC were taxed far more heavily than other industries.

"Improving performance in the economy itself will not pull this industry out of the hole," he said.

The commission also recommended allowing greater foreign investment in U.S. airlines and setting up an independent corporation outside the federal budget process, to manage and fund the air traffic control system.

"The outmoded air traffic control system is costing airlines and consumers billions of dollars each year in delays and it badly needs to be modernized," the report concluded.

In recommending tax and regulatory relief, the commission responded to complaints cited most frequently by the airlines themselves. The panel also blamed the federal government for failing to monitor the financial health of the industry.

The Department of Transportation "is not doing its job," said Mr. Baliles. "If DOT were a watchdog, it might not have approved some of the disastrous leveraged buyouts."

In a slick and colorful publication, the commission's report made little reference to widespread criticism that mismanagement and greed has played no small part in the airlines' current woes.

"To the extent there was mismanagement and poor decisions, )) the place to correct that is in the boardroom," Mr. Baliles said yesterday during a news conference here.

Critics have argued that airlines, in the wake of deregulation, expanded too rapidly and engaged in devastating, cutthroat competition. The report concluded, however, that airline losses would have been even worse if the industry had not been deregulated in 1978.

Acknowledging that airline bankruptcies have hurt the entire industry by keeping fares artificially low, the commission suggested an overhaul of the federal bankruptcy code and recommended a one-year limit on the exclusive right of carriers to file for reorganization under Chapter 11 bankruptcy.

The commission also recommended raising the limits of foreign ownership of a U.S. airline to 49 percent as part of a bilateral agreement to allow greater U.S. investment abroad. Currently, foreign ownership is restricted to less than 25 percent of a company's voting stock.

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